Liability Monitoring – 30 September 2016

November 11, 2016
| Ireland

The current edition of our Liability Monitoring deals with the position at end quarter 3, 2016. To view our full update, please click the download link. The highlights for this issue of Liability Monitoring are:

  • Yields on Euro Sovereign and Corporate bonds fell slightly. 
  • Eurozone inflation expectations increased slightly during the quarter.
  • We estimate that accounting liabilities have increased by around 22% since 31 December 2015 (for a sample scheme with 20 year duration) as a result of movements in discount rates. 
  • Annuity prices reached new highs.
  • The Settlement Premium increased slightly and remains outside the range where we see settlement of liabilities as an attractive option.

On 24 October, the Pensions Authority announced changes to the Standard Transfer Value basis that will take effect from 1 January 2017. As well as affecting individual transfer payments the change will increase the Funding Standard liabilities for most defined benefit pension schemes.  The liabilities for a typical scheme might increase by 2-4% (depending on the age profile) as a result of the proposed changes.

Pension accounting and Liability management exercises

The sharp fall in bond yields since the start of 2016 means that pension deficits in most Company’s accounts will have increased significantly during the year.  This places further pressure on sponsoring employers and we are seeing an increase in the number of companies examining ways to reduce their exposure to pension liabilities.  In particular, a number of Enhanced Transfer Value (ETV) exercises have been completed by Irish PLCs.  These exercises allow companies to remove liabilities from their balance sheet at a cost which is lower than the accounting value of those liabilities.  This is one example of the range of solutions which are available to proactively manage pension liabilities.

If you would like to discuss these issues in more detail please contact your Willis Towers Watson Consultant or a member of our Corporate Consulting Team.